First, the credit crunch in the subprime market will reduce the demand of new home by potential subprime borrowers. Goldman estimated this effect to be as large as 200k less new homes sold this year.

Second, about $1.5 trillion of ARM will be reset this year and next: a rising fraction of these borrowers will be unable to afford the much higher rates on their mortgages and will be forced to sell their homes.

Third, it takes about six months or so for a subprime mortgage deliquency to lead to foreclosure, and the bank taking over the home and then putting it on sale in the market; once that occurs, the supply of homes in the market will increase. Some forebearance will occur but many homes will end up in foreclosure and then sold by the creditors adding to the housing supply glut.

Fourth, folks who bought homes in the last two years for speculative reasons with little equity (the condo flippers) will sell their homes as rapidly as possible as now falling home prices are wiping out the little equity they did have in these homes.

In summary, all four factors will increase the excess supply of unsold new and existing homes and will push further downward home prices. The housing carnage will get much worse before it gets any better.